HSBC must face U.S. lawsuits over $34 billion mortgage debt losses

NEW YORK (Reuters) - HSBC Holdings Plc (HSBA.L) was on Monday ordered to face three U.S. lawsuits accusing it of breaching its duties as a trustee overseeing residential mortgage-backed securities that suffered more than $34 billion of losses in the global financial crisis.

The HSBC bank logo is pictured at the bank headquarters in Paris April 9, 2015. REUTERS/Gonzalo Fuentes

U.S. District Judge Shira Scheindlin in Manhattan said the plaintiff investors, including funds from BlackRock Inc (BLK.N), Allianz SE’s (ALVG.DE) Pacific Investment Management Co and TIAA-CREF, could pursue claims accusing HSBC of breach of contract, and concealing known defects in mortgage loans backing 283 trusts.

“Based on plaintiffs’ detailed allegations, it is indeed plausible to infer that HSBC had actual knowledge of breaches in representations and warranties in the specific loans at issue,” Scheindlin wrote in a 53-page decision. “How HSBC gained this actual knowledge, or whether in fact it had actual knowledge, may be determined through discovery.”

The judge also said the plaintiffs could pursue a conflict of interest claim accusing HSBC of refusing to “rat out” misconduct by loan servicers, hoping that they would “return the favour when the roles were reversed.”

Scheindlin dismissed some claims, including for negligence and negligent misrepresentation. She gave the plaintiffs 30 days to amend their complaints, and scheduled a June 24 conference.

HSBC spokeswoman Juanita Gutierrez declined to comment.

Trustees are appointed by bond issuers to ensure that payments are funnelled to investors, and to handle much of the back-office work after securities are sold.

But trustees have in recent years also become a target for investors who lost money on poorly underwritten mortgages, and who accuse the trustees of breaching their duties by failing to force lenders and bond issuers to buy those loans back.

“Our clients are extremely pleased with Judge Scheindlin’s order, sustaining actionable claims on all the RMBS trusts in our action,” said Blair Nicholas, a lawyer for the BlackRock, Pimco and TIAA-CREF plaintiffs, in a phone interview. That lawsuit involved 271 of the 283 trusts.

Lawyers for plaintiffs in the other lawsuits did not immediately respond to requests for comment.